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Avo Engineers (P) Ltd. v. India Ice Aerated Water & Cold Storage Co. Ltd.
Structured Summary of the Opinion (Pinaki Chandra Ghose, J.)
Factual and Procedural Background
This appeal challenged an order dated 4 May 2005 of the Company Judge (the "Hon'ble First Court") that admitted a winding up petition and directed the appellant company to pay rent at an enhanced rate claimed under section 17(4A) of the West Bengal Premises Tenancy Act, 1997 (the "said Act"). The First Court directed the company to pay the enhanced rate from June 2005 and to pay 50% of the arrears by six equal monthly instalments payable within January 2006. The petitioner (landlord / petitioning creditor) was directed to file certain undertakings in terms of that order.
The appellant-company contended that it was never served with a notice under section 20 of the said Act (required for enhancement) and that the respondent failed to produce any such notice when ordered to do so. The respondent served a notice under section 434 of the Companies Act, 1956, claiming Rs. 4,00,400/-. The appellant said it was a monthly tenant of three tenancies paying Rs. 2,288 per month, disputed the claimed enhancement and raised a bona fide defence that the enhancement procedure under sections 17(4A)/17(4B) requires the Controller's determination (and a section 20 notice), and therefore the claim could not be treated as a crystallized debt for winding up.
Legal Issues Presented
- Whether an enhanced rent claimed under section 17(4A) of the West Bengal Premises Tenancy Act, 1997 constituted a "debt" capable of supporting a winding up petition where no notice under section 20 of the Act was served and the fair rent had not been fixed by the Controller.
- Whether the Company Court (the First Court) had jurisdiction to determine or treat as crystallized the fair rent claim, notwithstanding that section 17 envisages fixation of fair rent by the Controller and that section 44 bars Civil Courts from fixing fair rent.
- Whether the enhancement provided by section 17(4A) operates automatically (and retrospectively from the date specified in the amendment) so as to create an immediately enforceable claim against the tenant without compliance with the notice / Controller fixation procedure in the Act.
Arguments of the Parties
Appellant's Arguments (Company)
- No notice under section 20 of the West Bengal Premises Tenancy Act was served on the company; the respondent failed to produce any such notice when requested by the Court.
- The only notice served was under section 434 of the Companies Act, 1956; that did not substitute for a section 20 notice under the Tenancy Act.
- Sections 17(4A) and 17(4B) provide for determination of "fair rent" (by the Controller) rather than automatic enhancement; therefore, the landlord had to follow statutory procedure including notice and application to the Controller.
- In the absence of the statutory procedure and fixation by the Controller, the claimed sum could not be treated as a crystallized "debt" for the purposes of a winding up petition; there was a bona fide dispute constituting a defence which the Company Court should have considered, and the claim should have been relegated to a suit or the proper forum.
- The respondent's demand of Rs. 4,00,400/- was frivolous on the calculations presented by the company (illustrating that five times the monthly rent and relevant months would yield a much smaller sum) and the company had been incorporated only on 7 October 2003, limiting its liability in the manner argued before the Court below.
Respondent's Arguments (Petitioning Creditor / Landlord)
- The respondent contended that section 17(4A) entitled the landlord to five times the existing rent and that the appellant was liable to pay Rs. 11,440/- per month from July 2001 to May 2004, yielding the Rs. 4,00,400/- claimed.
- Some tenants had already paid the enhanced rent, and the petitioner's claim was therefore legitimate.
- The respondent relied on authorities and argued that the amendment (section 17(4A)) came into force with retrospective effect (from 10 July 2001) and that, as a matter of interpretation, the special provision in section 17(4A) should prevail over the general notice provision in section 20.
- The respondent relied on case law (including a company-court decision reported in 59 Company Cases 435 — In re: Siddhartha Apparels P. Ltd. / In re: Biren Roy Trust) to support the submission that rent can constitute a debt for winding up.
- The respondent further relied on interpretative principles and authorities (including J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. State of U.P., AIR 1961 SC 1170, Krishan Kumar v. State of Rajasthan, AIR 1992 SC 1789, and Sultana Begum v. Prem Chand Jain, 1997 (1) SCC 373) to argue in favor of the landlord's construction that section 17(4A) should be read to give the landlord benefit from July 2001 onwards.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| 59 Company Cases 435 (In re: Siddhartha Apparels P. Ltd. / In re: Biren Roy Trust) | Cited by the respondent to support the proposition that rent can be treated as a debt for company-law purposes (winding up). | The respondent relied on this authority to argue that the rent claim was a crystallized debt; the Court recorded this reliance but the final decision did not rest upon this authority. |
| AIR 1961 SC 1170 (J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P.) | Cited for the "golden rule" of interpretation and the principle that a special provision may prevail over a general provision. | The respondent relied on this principle to argue that section 17(4A) (special) should prevail over section 20 (general). The Court considered the submissions but rejected the contention that the landlord could fix fair rent without following the Controller/section 20 procedure. |
| AIR 1992 SC 1789 (Krishan Kumar v. State of Rajasthan) | Cited in support of interpretive approaches favouring the object of the amendment and harmonious construction. | The respondent cited this decision; the Court acknowledged the decision(s) relied upon but based its outcome on the statutory scheme and other authority (see Mechlec Engineers). |
| 1997 (1) SCC 373 (Sultana Begum v. Prem Chand Jain) | Cited for principles of statutory interpretation and harmonious construction. | Cited by the respondent; the Court considered the line of authorities but did not accept the respondent's construction that would permit the landlord to fix fair rent without following the Controller/notice procedure. |
| AIR 1977 SC 577 (Mechlec Engineers & Manufacturers v. Basic Equipment Corporation) | Authorities on the principles to determine whether a claim had crystallized into a "debt" for company-law (winding up) purposes. | The Court expressly followed the principles in this decision to hold that the alleged rent claim had not crystallized into a debt at the time the winding up petition was presented; accordingly, the petition was premature and bound to fail on that ground. |
Court's Reasoning and Analysis
The Court analyzed the facts and the statutory scheme of the West Bengal Premises Tenancy Act, 1997, as amended by the 2002 Act (which the Court noted was deemed to be in force from 10 July 2001). The Court highlighted the Statement of Objects and Reasons to the amendment which stated that section 17 was amended "for fixation of fair rent in such a manner so as to provide benefit to both the landlord and tenant concerned."
Key steps in the Court's reasoning (as set out in the opinion):
- The Court accepted that the respondent had not produced evidence of service of any notice under section 20 on the appellant; the appellant had raised a bona fide dispute on this factual point before the First Court.
- The Court interpreted sections 17(4A) and 17(4B) in their statutory context and concluded that those provisions speak of the "fair rent" being "determined" — a function entrusted to the Controller under the Act. Thus the statutory scheme contemplates determination by the Controller on application by a party (landlord or tenant) in the prescribed manner.
- The Court rejected the contention that a landlord could, without notice and without bringing the matter before the Controller, unilaterally treat the enhanced amount as a crystallized debt. The Court held it was the landlord's duty to apply to the Controller and to follow the statutory procedure (including the notice requirement under section 20) before any amount could be treated as due.
- Applying the principles in AIR 1977 SC 577 (Mechlec Engineers & Manufacturers v. Basic Equipment Corporation), the Court held that until the Controller fixes the fair rent and the tenant then fails to pay it, the amount cannot be treated as a 'debt' capable of supporting a winding up petition. On that basis, the Court found that the petitioning creditor's claim was not crystallized at the time of presentation of the winding up petition and the petition was premature.
- The Court further observed that section 44 of the Act bars Civil Courts from fixing fair rent; this underlined that the Company Court did not have jurisdiction to determine and fix fair rent in the first instance.
- Consequently, the Court concluded both on the lack of a section 20 notice / the statutory procedure and on the non-crystallization of the alleged debt that the winding up petition should have been dismissed as premature and without jurisdiction to make the order impugned.
Holding and Implications
Final Holding: The appeal was allowed. The order of the Company Judge dated 4 May 2005 admitting the winding up petition and directing payment at the enhanced rate was set aside, and the winding up petition was dismissed.
Direct Implications for the Parties:
- The winding up petition presented by the respondent (petitioning creditor / landlord) fails and is dismissed on the grounds that (a) the landlord had not complied with the statutory procedure (no section 20 notice was shown to have been served), and (b) the alleged enhanced rent was not a crystallized "debt" at the time of presentation of the petition.
- The Company Court's order requiring payment at the enhanced rate and instalments was set aside.
- The Court recorded that fixation of fair rent is a matter for the Controller under the Tenancy Act (and that Civil Courts are barred by section 44 from fixing fair rent), indicating that any claim for enhanced rent must be pursued through the statutory mechanism before the Controller before it can be treated as a debt enforceable in winding up.
Broader Implications / Precedential Note:
The opinion reasons from the statutory scheme and applies established authority (notably AIR 1977 SC 577) to the facts before it. The judgment did not purport to lay down a novel legal principle beyond applying existing principles on crystallization of debt and the statutory allocation of jurisdiction to the Controller. Accordingly, the direct legal consequence is limited to the parties and the correctness of admitting a winding up petition where the statutory procedure for fixation of fair rent has not been followed; the Court did not indicate any broader departure from existing precedent.
Administrative note: The judgment records that Narayan Chandra Sil, J. agreed with the conclusions reached by Pinaki Chandra Ghose, J.
Pinaki Chandra Ghose, J.:— The appeal is directed against an order dated May 4, 2005 passed by the Hon'ble Company Judge admitting the winding up petition and directed the appellant herein to make the payment at the enhanced rate in the terms of section 17(4A) of the West Bengal Premises Tenancy Act, 1997 (hereinafter referred to as the said Act). It has further been directed that the company would go on making payment at the enhanced rate commencing from June, 2005 and the balance 50% of the arrear would be paid by the company by six equal monthly instalments payable within January, 2006. The petitioner was directed to file certain undertakings as would be evident from the order so passed by the Hon'ble First Court.
2. The interesting point has been taken before us by the learned Counsel appearing on behalf of the company that the company was never served with a notice under section 20 of the said Act to enhance the rate in question. He further contended that no notice under section 20 of the said Act was ever served upon the appellant by the landlord, the petitioning creditor/respondent herein. We directed the learned Senior Advocate appearing on behalf of the respondent to produce the said notice under section 20 of the said Act before this Court showing the receipt thereof by the company but the respondent failed to produce such notice under section 20 of the said Act and to produce any document to show that it was served upon the appellant/company. Therefore, it is submitted it has been recorded in the order dated May 4, 2005 by His Lordship that “Landlord gave notice for increase of rent as permissible under section 17(4A) of the West Bengal Premises Tenancy Act, (1977) 1997” is not a correct position on facts. Therefore, it was submitted that in fact no notice was served upon the company by the landlord excepting a notice under section 434 of the Companies Act, 1956. According to the appellant, admittedly the appellant is a monthly tenant in respect of three separate tenancies under the respondent and a sum of Rs. 2288/- per month is payable by the appellant to the respondent per month in respect of those tenancies.
3. By the said notice under section 434 of the Companies Act, 1956, respondent claimed a sum of Rs. 4,00,400/- from the company. It is submitted that enhancement of rent is not automatic even under section 17(4A) of the said Act it has been specifically stated by the Legislators in the amending Act of 2002, which was published in Calcutta Gazette on 6th August, 2002 and it has been stated that it shall be deemed to have come into force on and from 10th July, 2001. The said sections 17(4A) & 17(4B) of the said Act are reproduced hereunder:
“17(4A). Where a tenancy subsists for twenty years or more in respect of the premises constructed in or before the year 1984 and used for commercial purpose, the fair rent shall be determined by adding to the rent as on 1.7.1976 five times or by accepting the existing rent if such rent is more than the increased rent determined under this sub-section.
17(4B). Where a tenancy subsists for ten years or more but less than twenty years in respect of the premises constructed in or before the year 1984 and used for commercial purpose, the fair rent shall be determined by adding to the rent as on 1.7.1986 three times or by accepting the existing rent if such rent is more than the increased rent determined under this sub-section.”
4. Therefore, it is submitted on behalf of the appellant that the Legislators thought it is fit to be stated that the fair rent shall be determined by adding to the rent as on 1st July, 1976 five times or by accepting the existing rent if such rent is more than the increased rent determined under the said sub-section. Therefore, it is submitted that no chance has been given to the appellant before the determination of enhanced rent, which is stated to be the fair rent by the Legislators under the said provisions of law. Hence, it is submitted that without serving a notice and without giving a chance to the tenent under section 20 of the said Act, the Landlord has no right to get the benefit of fixation of fair rent automatically. Therefore, it is contended that in the absence of such notice there is a bona fide dispute as to whether any debt can be sought to be crystallized in favour of the Landlord and that the said ground of the company would be taken as a defence which is not sham or colourable and then the Court must give a chance of being heard to the appellant before admitting the winding up petition and the Court should have relegated the claim of the petitioning creditor to a suit. It is submitted that the Court has wrongfully without taking the said part at all decided the matter and even without giving a chance to the company of being heard admitted the petition.
5. It is further submitted, after the said notice is served under section 20 of the said Act claiming the enhanced rate any claim for enhanced rent for a period prior thereto cannot said to be a fair rent and under section 13 of the said Act the tenant cannot be also held liable for the said payment. Therefore, in the instant case it is admitted that firstly no notice under section 20 of the said Act was served and further the notice under section 434 of the Companies Act, 1956 was served by the learned Advocate-on-Record to the company dated 4.6.2004 and the letter was duly replied by the learned Advocate on behalf of the appellant on 19th June, 2004. It was specifically stated in the reply that section 17 of the said Act deals with fixation of fair rent and it is also stated that excepting the Controller the landlord has no authority to fix the amount under section 17(4A) of the said Act and can raise a claim since July, 2001 till May, 2004. Therefore, it is submitted that a bona fide dispute was also raised by the company in their said reply.
6. Accordingly, it is submitted that the Court should not have directed to pay the rent at such enhanced rate since 2001. It is further submitted that the appellant company was only incorporated on 7th October, 2003 and certificate of incorporation was duly annexed to the affidavit-in-opposition of the company before the Hon'ble First Court (vide Certificate of Incorporation No. U50200WB2003PTC097087).
7. Therefore, it is submitted that such claim is totally wrongful on the part of the respondent. It was further submitted that the company was not liable to pay the liabilities of the erstwhile tenants. It is further submitted that even if it is taken into account that five times rent can be enhanced but it would be evident from the demand notice under section 4,00,000/- which is frivolous for the following reasons:
The company came into existence in 7th October, 2003. The five times would be Rs. 2288 × 5 i.e Rs. 11,400/-. Further, if we multiply the sum by ten months it would it would be only Rs. 1,14,400/- from February, 2004 till November, 2004 (since it has been stated that notice under section 20 of the said Act was served in January, 2004, but in fact the respondent has failed to produce any document to prove the same).
8. Therefore, the claim of the respondent of Rs. 4,00,400/- in the winding up petition was frivolous and there is a bona fide dispute. It is further submitted that the Company Court had no jurisdiction to determine the fair rent. Accordingly, the said said order is bad in the eye of law. It is submitted that on these grounds the said order should be set aside.
9. On the contrary, Mr. Ghatterjee, learned Senior Advocate supplied that the company was liable to pay five times of the existing rent in view of section 17(4A) of the said Act and he submitted that the appellant was to pay Rs. 11,440/- per month from July, 2001 till May, 2004. Therefore, the outstanding rent from July, 2001 to May, 2004 is amounted to Rs. 4,00,400/-. He submitted that some of the tenants have already paid the enhanced rent. He further contended that the learned Advocate for the appellant contended before the Hon'ble First Court that there are certain grievances of the appellant and if such grievances are met then they have no objection in paying the enhanced rent. Accordingly, fifty per cent of the arrear amount was directed to be paid within January, 2006 in six equal monthly instalments commencing from June, 2005. Respondent was also directed to give undertaking to do certain things. Undertakings were filed before the Court, in time. He further contended that the rent is nothing but debt which is already accepted by the Court and relied upon a decision reported in 59 Company Cases 435 (In re: Siddhartha Apparels P. Ltd. In re: Biren Roy Trust). He further submitted that there is no bona fide dispute on the part of the tenant/company.
10. He submitted that by amending the said Act in 2002 section 17(4A) and section 17(4B) of the said Act were inserted by the Legislators and came into force on 10th July, 2001. Therefore, according to him, if notice was given in August, 2002, enhanced rent was to be received from September, 2002 as per the provisions contained in section 20 of the said Act. Therefore, the landlord would be deprived of receiving enhanced rent from July, 2001 to August, 2002. That is the reason section 17(4A) of the said Act was inserted by the said amending Act with an onject to give benefits to the landlord to receive enhanced rent and further without serving any notice under the said Act. It is only the duty of the tenant to pay the said sum. He further submitted that golden rule of interpretation if followed it has to be accepted that section 17(4A) of the said Act is a special provision while section 20 of the said Act is a general provision, therefore. Section 17(4A) should prevail. He relied upon a decision reported in AIR 1961 SC 1170 (J.K Cotton Spinning and Weaving Mills Co. Ltd. v. State of Uttar Predesh). Apart from the above golden rule of hamonious construction it is submitted that the Court should interpret the provision by which the object of amendment is fulfilled. He has relied upon a decision reported in AIR 1992 SC 1789 (Krishan Kumar v. State of Rajasthan) and another decision reported in 1997 (1) SCC 373 (Sultana Begum v. Prem Chand Jain).
11. We have analyzed the facts of this case and considered the decisions cited before us by the learned Counsel for the parties. It appears to us that there is a bona fide dispute raised by the appellent before the Hon'ble First Court. After scrutinizing the facts it appears to us that the Statement of Objects and Reasons to amend the West Bengal Premises Tenancy Act, 1997, duly stated in West Bengal Premises Tenancy (Amendment) Bill, 2002 and it would be evident from the said Bill that section 17 of the said Act has been amended on the following objects and reasons which is reproduced hereunder:
“6. To amend section 17 of the said Act for fixation of fair rent in such a manner so as to provide benefit to both the landlord and tenant concerned.”
12. Therefore, it is clear to us that the Legislators thought to give benefit to both the tenant and to the landlord and in respect of fixation of fair rent and coming to a harmonious meaning to the said Act for fixation of fair rent we cannot shut our eyes that section 17 of the said Act has been made for the purpose of fixation of fair rent and the jurisdiction was given to the Controller who has a right and the authority to fix the fair rent on an application to be made either by the landlord or by the tenant in the prescribed manner. It was specifically stated that the Controller shall fix the fair rent in respect of any premises in accordance with the provisions of this Act. Therefore, we cannot accept the contention of Mr. Chatterjee that without giving an opportunity to the tenant the fair rent can be determined by the landlord and that too without serving any notice under section 20 of the said Act and further without giving a chance of being heard to the tenant. It has been specifically stated in the amended Act of 17(4A) and 17(4B) “that fair rent shall be determined”. Therefore, it is the duty of the landlord to apply before the Controller for fixing the fair rent and without taking the burden on his shoulder to fix the same in accordance with the provisions of section 17(4A) and section 17(4B) of the said Act as contended before us. Therefore, in our opinion, it was the duty of the landlord to serve a notice under section 20 of the said Act for enhancement of the rent and further it has to be settled by the Controller who only has a power to fix the fair rent and not by any other Court. Therefore, in our opinion, the company has raised a bona fide dispute in the matter in respect of the claim of the petitioning creditor, since in our opinion until the fair rent is fixed and/or determined by the Controller and there is a failure on the part of the tenant to pay it off the said amount cannot be treated as a ‘debt’ which is due by the tenant to the landlord, therefore, following the principles laid down AIR 1977 SC 577 (Mechlec Engineers and Manufacturers v. Basic Equipment Corporation) we do not have any doubt in our mind to hold with respect to the Hon'ble First Court that the ‘debt’ of the appellant was not crystallized at the time of presentation of the petition, in other words, we do not find any ‘debt’ prevailing at the time of presentation of the winding up petition by the petitioning creditor and, therefore, the said petition ought to have been held as premature winding up petition. We further hold that for non-service of the notice under section 20 of the said Act the claim of the petitioning creditor is also premature and therefore, in our opinion the winding up petition must fail on that ground also. Further we place it on record that there is a bar under section 44 of the said Act of the Civil Court to fix the fair rent in respect of a tenancy. Hence, we have to hold that the Hon'ble First Court had no jurisdiction even to pass such order, as the fixation of fair rent was not determined by the Controller.
13. Accordingly, on the said reasoning we set aside the order so passed by the Hon'ble First Court as well as dismiss the winding up petition.
14. The appeal is thus allowed on the above terms.
Narayan Chandra Sil, J.:— I agree.
Appeal allowed.
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